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SYDNEY, Australia--The New South Wales Supreme Court last week rejected a bid by General Reinsurance Australia Ltd., Guy Carpenter & Co. Inc. and investment bank Goldman Sachs to drop certain charges from a case brought against them by the liquidator of the collapsed HIH Insurance Ltd.
The trio recently took HIH's liquidator, Tony McGrath, to court in an effort to reduce the $530 million Australian ($447.1 million) Mr. McGrath is seeking from them for their alleged role in HIH's 2001 collapse. The sum sought equals the amount HIH paid for FAI Insurance Group in 1998. Investigations determined that the acquisition of FAI played a key role in HIH's undoing.
Mr. McGrath's suit accuses Gen Re, Guy Carpenter and Goldman Sachs--as well as certain individuals--of withholding information about FAI's financial strength and failing to advise HIH about what were essentially false profits.
Guy Carpenter acted as the broker in 1998 when FAI bought an allegedly bogus finite reinsurance contract from National Indemnity, a subsidiary of Gen Re parent Berkshire Hathaway Inc., which a government inquiry into HIH found allowed FAI to mask its true financial condition.
Goldman Sachs was FAI's financial adviser during its takeover by HIH.
Gen Re, Guy Carpenter and Goldman Sachs argued to the court that there was insufficient evidence to prove that HIH lost money as a result of the takeover of FAI, which relied on their advice.
But Justice Clifford Einstein ruled that the case against them should remain the same because "the respective defendants' submissions on this strike-out...are of no substance."
Gen Re, Goldman Sachs, Guy Carpenter and Mr. McGrath did not return calls seeking comment.
The trial is to begin later this year.
Separately, Australia's insurance regulator last week issued the first part of a final report on its recently concluded investigation of "a set of improper financial reinsurance transactions" entered into by General Reinsurance Australia between 1997 and 2001, the Australian Prudential Regulation Authority said in a statement.
APRA in recent years has disqualified several individuals at companies involved in the transactions and is undertaking other enforcement actions.
Gen Re's Australian operation engaged in "questionable behavior" by issuing reinsurance contracts to FAI Insurance Group, New Cap Reinsurance Corp. Ltd. and Zurich Australia Insurance Ltd. that enabled those insurance companies to inflate their profits or solvency position, the report says.
The report is available at www.apra.gov.au/General/Other-Information-for-GIs.cfm.